Land banking – the property development strategy of the pros

How many times have you driven past a property and said to yourself, “If only I had bought that property when it was for sale five years ago?39653963_l

Who wouldn’t have bought more properties 10 years ago if they knew they would have doubled in value, like many well located real estate has done over the last decade?

Fast forward five years from now – would you like to own a property development site that cost you much less than its current price?

Well maybe you should consider Land Banking – a strategy used by many professional property developers.

How Does Land Banking Work?

Land Banking is simply the process of securing future property development sites today, at the current price.  

Many large property development companies buy Greenfield sites, farms or large tracts of land and put them in their “land bank” to ensure they have a sufficient stock of land for future property developments.

Over time they rezone the land, put in the necessary roads and infrastructure, undertake a subdivision and on-sell the individual lots.

While holding a bank or stockpile of land has helped many developers make big profits in a rising market, it has also been the downfall of a number prominent developers when real estate values slumped, or rising interest rates blew out holding costs.

Land banking is a great strategy for smaller property developers too.

It’s an approach I’ve used successfully for the last few decades because I’ve learned to keep my holding costs to a minimum so they don’t break the bank.

You see…I don’t buy vacant blocks of land.

I buy old houses close to their “use by date” on well located blocks of land, with property development potential in top suburbs.

While the rent I receive partially offsets my holding costs, I add value to my site by obtaining property development approval (D.A) and then over time, proceeding with the property development.

Why is Land Banking a good investment strategy?

Many investors have made small fortunes by land banking because they are able to use a number of different property wealth accelerators that, when combined, generate substantial profits:

1. Land appreciates – we all know that it’s the land component of your property investment that appreciates, so buying a property close to its land value can be a smart strategy. Table With Plan Tools And Samples Of A Decorator Top

2. Adding Value – by obtaining property development approvals you can add substantial value to a site.

Once you obtain a development approval for subdivision or for multiple dwellings, apartments or townhouses, you’ve taken out one element of the property development risk – the council approval process.

This makes your site more attractive to developers who may be prepared to pay a premium for it and it gives you the option of selling for a profit, or refinancing and continuing with the property development process.

3. Riding the property cycle – I like securing potential property development sites in a “soft” market.

At these times, completing a project may not be particularly lucrative, so I can buy these sites at a good price. property cycle

As the market moves on, and it always does, the combination of a stronger market and owning a block of land with a D.A. in a prime position allows me to complete my project and make a substantial profit.

This strategy works particularly well in the inner and middle ring suburbs of our capital cities, where there is no vacant land for future development, but there is an increasing demand for new medium density developments from a whole new demographic of smaller households.

This includes Gen Y’s starting out in apartments, to DINKS (dual income no kids households); MINGLES (Middle Aged Singles) and Baby Boomers who are downsizing.

The combination of the current flat property market, a limited supply of potential property development sites and the future demand for more medium density housing make a perfect recipe for successful land banking.

What are the risks?

Each year I explain Land Banking plus a host of other property development and renovation strategies at my annual Property Renovations & Development Workshop but in short here are some cautions…9544936_l

Whilst this strategy offers significant rewards, there are a host of traps for the unwary.

The biggest one is in relation to what type of project (if any) can fit on the property?

There are some properties, in fact many properties, that even if in the right location, don’t make good development sites.

At Metropole, we have a detailed checklist to assess properties for development potential.

Once we understand the local council’s requirements, some of the things we look for when we assess a site’s suitability for property development include:-

1. Size and dimensions – how big is the site and are the dimensions (length x width) suitable for development?

Is it a corner site that allows better subdivision potential?

2. Current dwelling? What is on the land at present, can it be leased while obtaining a D.A?

Will there be issues with demolition – e.g. heritage, asbestos?

3. Topography: Is the site flat or does it slope?

If so is the slope in the right direction for the natural fall of services (sewerage and drainage) or will pumping be required?

4. Significant trees or obstacles? Are there any significant trees on the property or nature strip that will need to be retained and affect the development?

Are there power poles on the footpath that may need to be moved to allow for crossovers? 41378319 - house in construction project with brick and blueprint

5. Site Orientation: Which way is the site facing?

This has implications for planning (natural light), overshadowing and overlooking (privacy issues with neighbours).

6. Neighbourhood Character – what type of properties are in the neighbourhood and how will this impact on the nature of the proposed development?

Are there new developments in the street that could act as a precedent for the proposed project?

What type of neighbours are you likely to have? Are they likely to object to a new development in their street?

7. Neighbouring properties  – what are their setbacks from the street (may affect the required setback of the new development) and what are their setbacks from your boundaries? Are they single or double storey?

Do they have windows facing the proposed new project?

All these could affect the size and positioning of your proposed project with regard to overshadowing or impacts on privacy.

8. Utilities: What utilities are available?
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Water, electricity, phone and gas?

Will they need upgrading?

Are there any easements affecting the supply of utilities?

9. Site Accessibility:
 Will it be easy to access the site for construction?

This can be a problem in narrow inner suburban streets.

10. Title Checks:
 We then look for the following on the certificate of title or in the online planning scheme:
a. Easements: Are there any easements on the site?
b. Covenants: Are there any covenants or restrictions in the title deed?
c. Development overlays- are there any flood overlays that affect building heights?

Want to lean more about Land Banking or Property Development?

Why not join me at Australia’s leading advanced real estate training – my 2 day Property Development and Renovation Workshop being held in Melbourne on October 26th and 27th.

It’s not really that long to go now, so please click here and get all the details and reserve one of the early bird spots that are left on line.

Or call my assistant Jo Fitt on 03 9591 8888 to discuss the curriculum, the networking opportunities, the bonuses and my personal money back guarantee.

I’ve put together Australia’s best faculty of property investment, finance, development, renovation and tax experts. All “real world” people who have done it themselves and maintained their wealth in the long term.

Over the last 16 years we have proven that when you gather the 3 following specific elements in one place, you have an unbeatable combination...

1. The Right People Financial Meeting At Office

(Learn to think like they think, act like they act, and profit, like they profit)

Only our Property Development and Renovation Workshop  attracts dozens of top property investors in one place, so you will not only learn from the speakers but have amazing networking opportunities.

You will be rubbing shoulders, learning, eating, drinking and playing with these folks in a relaxed atmosphere.

Just 5 minutes with the right person could radically change your investment outlook.

2. The Right Systems

There are many different property investment strategies.

If you find just one strategy that suits you and works right now your property profits will take quantum leaps.

That’s why I’ve carefully hand-pick the presenters to give you dozens of proven property investment strategies that work now in this new environment.

3. The Right Mindset

The More Successful People You’re Exposed To, The More Successful You Will Become!

That’s why I have selected our faculty based on 4 important criteria…

  1. They’re recognised experts in their respective fields
  2. They’re successful and have proven track records
  3. They’re highly sought-after for their knowledge and expertise
  4. They’re approachable, candid and willing to share their inside secrets and disclose some of the most coveted tips!

Quite simply, we bring together some of the best property minds in Australia for three days to literally give you a mental brain dump of information.

We condense decades of time-tested, proven business strategies, and reveal them to you in a closed door, private environment.36308275_l

Unlike many other seminars, our teachers are not just speakers who run businesses in their minds and speak for a living.

They are actively involved in the property markets themselves, day in and day out.

And most will stay there for most of the weekend to answer your specific questions.

I only run this event once a year and I only conduct it in Melbourne and this year I’ve added more content and reduced your investment.

Plus I’ve added 9 bonuses.

Click here now and get all the information then reserve one of the few remaining early bird special price places left.

At the time of writing there are still early bird places left, so join us in our small class room environment for 2 days in October.

Or call Jo Fitt on 03 9591 8888 to discuss the curriculum, the networking opportunities, the bonuses and my money back guarantee.

………………………………………………………….

IF YOU’RE ALREADY AN EXPERIENCED PROPERTY INVESTOR OR YOU WANT TO “FAST TRACK” YOUR SUCCESS…

Here’s your chance to invest 2 powerful days and learn renovation and development strategies that experienced property experts are using around Australia to “manufacture” capital growth and generate strong rental returns, so that they can win in today’s challenging property markets.

TAKE YOUR PROPERTY INVESTING TO A WHOLE NEW LEVEL BY JOINING ME IN OCTOBER AT MY…
PROPERTY RENOVATIONS & DEVELOPMENT WORKSHOP.

Ximg Presenters New.png.pagespeed.ic.gtfjgg N6wWhat’s it all about? Click here and find out more.

Maybe now it’s time you stepped up and played in the big league by getting started in property renovations or development.

This is the course where other “experts” who are now teaching got their education. Click here find out more and reserve your place

Michael Yardney

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Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Land banking – the property development strategy of the pros' have 6 comments

    Avatar

    May 16, 2018 Petra

    Hi Michael,
    I’m looking to contact one or two small Land Banking/Developers who work in the Northern Beaches region in Sydney. I have a good sized piece of land that I am considering selling that I think would be a great assess for someone who is looking to land bank.

    Reply

      Michael Yardney

      May 17, 2018 Michael Yardney

      Find the best local agent Petra – a good agent will secure you the best price

      Reply

    Avatar

    May 9, 2018 Scott Kay

    Hi Michael
    I think you should change the title of this article to reflect that you DON’T agree with Land Banking as it is known by ASIC.
    https://www.moneysmart.gov.au/investing/investment-warnings/land-banking.

    Perhaps a better title would be “A much better alternative than land banking”
    Regards
    Scott
    Except from your article:
    “You see…I don’t buy vacant blocks of land.
    I buy old houses close to their “use by date” on well located blocks of land, with property development potential in top suburbs.
    While the rent I receive partially offsets my holding costs, I add value to my site by obtaining property development approval (D.A) and then over time, proceeding with the property development.”

    Reply

      Michael Yardney

      May 9, 2018 Michael Yardney

      Scott – what the sharks and spruikers did to take money form innocent victims was never really landbanking

      Reply

    Avatar

    January 23, 2013 Seamus

    Nice article and provides some sound insight into the Land Banking business. The importance of achieving and maintaining a high standard of corporate governance for companies dealing in Land Banking is key to a successful and transparent relationship.

    BE well – Seamus

    Reply

    Avatar

    January 2, 2013 stanley

    thanks alot for this article on land banking

    Reply


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